Peru: Central Bank hold rates steady in November
November 12, 2020
On 12 November, the Central Bank of Peru maintained its key policy interest rate at the record low of 0.25% for the seventh meeting in a row. The decision followed a combined 200 basis points of rate cuts across March–April and was largely expected by market analysts.
The hold reflected a wait-and-see approach, supported by muted inflation expectations and a desire to support the nascent recovery in activity. The Central Bank sees inflation at the lower end of its 1.0–3.0% target range at the end of both 2020 and 2021. Meanwhile, the Bank noted a continued improvement in incoming economic data at the start of the fourth quarter, although activity still remains well below last year’s levels .
In its communiqué, the Bank highlighted the liquidity injections—totaling close to PEN 62 billion on 11 November—provided to support the financial system. As a result, the liquidity measures have helped to bring down interest rates over recent months and produced a 14.1% year-on-year increase in credit growth in the private sector in September.
Looking ahead, the Bank kept its forward guidance unchanged again this month, leaving open the possibility of further easing and stating that it “stands ready to extend monetary stimulus in different ways”. This comes despite the political ructions rocking the country at present, following the removal of Martín Vizcarra as president on as-yet-unproven corruption charges, and the head of Congress Manuel Merino being installed in his place on 10 November, of which the Bank has made no comment.
Reflecting on this, Hugo Perea and Hugo Vega, economists at BBVA Research, commented:
“The [Bank’s] statement does not refer to the current political context, which we interpret as a decision to wait and see how events develop over the next few weeks before considering a possible impact on the economy.”
Regarding the outlook, Luis Ortegal, an economist at Credicorp Capital, noted:
“We expect the Central Bank to hold its monetary policy rate unchanged at 0.25% and the vast liquidity environment throughout 2021. We expect rates hikes only by 2H22.”
Likewise, the vast majority of FocusEconomics LatinFocus panelists see no further rate cuts before the end of the year, with rates projected to rise gradually from Q2 2021 onwards.
The next monetary policy meeting is scheduled for 10 December.
Author: Stephen Vogado, Economist